A lowered bar to prove economic domestic industry at the ITC

The Federal Circuit recently issued an opinion expanding the categories of evidence that complainants (e.g., patent owners) may use to prove Economic Domestic Industry in 19 U.S.C. § 1337 cases before the International Trade Commission (ITC). Lashify, Inc. v. ITC, No. 23-1245, at 26 (Fed. Cir., Mar. 5, 2025) (“Slip Op.”).

The Federal Circuit held that the Economic Domestic Industry prong may be met through evidence of “‘expenses related to warehousing, distribution, and quality control’ as well as ‘sales and marketing expenses’ . . . to ‘the extent they relate to employment of labor and capital.’”¹ This lowers the bar to satisfy the Economic Domestic Industry prong at the ITC and is a turnaround from the Commission’s previously “well settled” view “that sales and marketing activities alone cannot satisfy the domestic industry requirement.”²

Background

Lashify, Inc. sued nine companies at the ITC seeking to exclude allegedly infringing eyelash extension products from importation into the United States based on infringement of several Lashify patents. As a Section 337 Complainant, Lashify needed to prove infringement of a Lashify patent and that, as of the time of its Complaint, that it had “domestic industry” protected by its patent, specifically that there was “an industry in the United States, relating to [products] protected by the [Lashify] patent…[that] exists or is in the process of being established.”³ Domestic Industry has two “prongs”—a “Technical prong” that Lashify could satisfy by proving its own or a licensed product practices at least one claim of the Lashify patent, and an “Economic prong” that Lashify could satisfy by proving that it or a licensee made: “(1) significant investments in plant and equipment; (2) significant employment of labor or capital; or (3) substantial investment in its exploitation [of the patent], including [through] engineering, research and development, or licensing.”⁴

The ITC has traditionally excluded sales and marketing,⁵ warehouses, storage, distribution⁶ and quality control⁷ for the Economic prong based on the legislative history of the statute and past cases relying on that history. Consequently, the ITC found that Lashify failed to satisfy the Economic prong because expenditures in these categories were “insufficient (1) when the labor or capital is used for selling and marketing, unless there exist ‘other qualifying expenditures,’ . . . and (2) when the labor or capital is used for warehousing, quality control, and distribution, if the products ‘are manufactured outside the United States and no additional steps occur in the United States to make them saleable.’”⁸

Federal Circuit’s clarification

On appeal, the Federal Circuit held “that it is not ‘overinclusive’ to include” expenses related to “‘warehousing, distribution, and quality control’ as well as ‘sales and marketing expenses.’”⁹

The Court held that there is no “carveout of employment of labor or capital [in the statute] for sales, marketing, warehousing, quality control, or distribution.”¹⁰ The Federal Circuit vacated the Commission’s determination and ordered that “[o]n remand, the Commission must count Lashify’s employment of labor and capital even when they are used in sales, marketing, warehousing, quality control, or distribution, and the Commission must make a factual finding of whether those qualifying expenses are significant or substantial based on ‘a holistic review of all relevant considerations.’”¹¹

Conclusion

The Federal Circuit’s decision raises questions regarding what types and amount of “sales, marketing, warehousing, quality control, or distribution” investment is necessary to satisfy the “significant” threshold required by the Economic Domestic Industry prong.¹² However, these sorts of investments now can satisfy Economic Domestic Industry where they could not before.

1 Lashify, Inc. v. ITC, No. 23-1245, at 26 (Fed. Cir., Mar. 5, 2025) (“Slip Op.”).

2 Id. at 13.

319 U.S.C. § 1337(a)(2).

4 Id. 1337(a)(3); Certain Digital Video Receivers, Broadband Gateways, and Related Hardware and Software Components, Inv. No. 337-TA-1158, USITC, Initial Determination at 69-70, 253-56 (July 28, 2020).

5 Certain Electronic Stud Finders, Metal Detectors And Electrical Scanners, Inv. No. 337-TA-1221, USITC, Comm’n Op. at 46 (Mar. 14, 2022).

6 Certain Sleep-Disordered Breathing Treatment Sys. & Components Thereof, Inv. No. 337-TA-890, USITC, Initial Determination at 173 (Aug. 21, 2014).

7 Certain In Vitro Fertilization Prods., Components Thereof & Prods. Containing the Same, Inv. No. 337-TA-1196, USITC, Comm’n Op. at 21 (Oct. 28, 2021).

8 Slip. Op. at 16 (quoting Certain Artificial Eyelash Extension Sys., Prods., and Components Thereof, Inv. No. 337-1226, USITC, Comm’n Op. at 30-31 (Oct. 24, 2022); see also Certain Artificial Eyelash Extension Sys., Prods., and Components Thereof, Inv. No. 337-1226, USITC, Final ID at 141 (Oct. 28, 2021); Comm’n Op. at 31-62 (Oct. 24, 2022).

9 Slip Op. at 26.

10 Slip Op. at 17.

11 Slip Op. at 26 (quoting Wuhan Healthgen Biotech. Corp. v. ITC, 127 F.4th 1334, 1339 (Feb. 7, 2025).

12 See 19 U.S.C. § 1337(a)(3)(B) and Wuhan Healthgen, 127 F.4th at 1338–39.